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WHAT LENDERS WANT TO KNOW ABOUT YOUR DEALERSHIP Vendor Management PA G E 12
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INSIDE
05......................................................... Tips to Convert a “No” 08....................Reasons You Need a Substantiated Valuation 09.......................................................AIADA Golf Tournament 10....................Traditions and Trends Need to Work Together 12.........What Lenders Want to Know About Your Dealership 14................................................... AIADA Dealer Conference
WHAT’S NEW
The NIADA National BHPH Summit will be held
Dec. 6-8 in Dallas, Texas. This year’s theme is “Reaching New Levels of Excellence.” The conference features industry leading speakers covering best practices in various BHPH related topics as well as industry updates and strategies for the upcoming year.
EDITORIAL NOTE /
COMPETING WITH FRANCHISE DEALERS AND COMING OUT ON TOP >> Correction
THE ARTICLE Competing with Franchise Dealers and Coming Out on Top in the August/September issue inadvertently listed the wrong author. It was actually written by Kathy Tafolla of Lobel Financial. Our apologies.
For more information contact Diann Flanders at diann@niada.com or (888) 906-8283.
ADVERTISERS INDEX
ADESA...................................................................................IFC AutoZone..................................................................................9 Black Book............................................................................ IBC Dealership Valuation Services................................................ 5 Lobel Financial..........................................................................3 Manheim ..........................................................................10, 11 Manheim Pennsylvania..........................................................13 NextGear Capital ...................................................................12 VAuto....................................................................... Back Cover
OFFICE
For information on how to become a member of AIADA, please contact Dave Warkentin at (602) 246-1498, aiada@aiada.net or www.aiada.net.
NIADA HEADQUARTERS
NATIONAL INDEPENDENT AUTOMOBILE DEALERS ASSOCIATION WWW.NIADA.COM • WWW.NIADA.TV 2521 BROWN BLVD. • ARLINGTON, TX 76006-5203 PHONE (817) 640-3838 Arizona’s Independent Dealer is published bi-monthly by the National Independent Automobile Dealers Association Services Corporation. 2521 Brown Blvd., Arlington, TX 76006-5203; (817) 640-3838. POSTMASTER: Send address changes to NIADA State Publications, 2521 Brown Blvd., Arlington, TX 76006-5203. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of AIADA or the NIADA. Likewise, the appearance of advertisers, or their identification as members of NIADA, does not constitute an endorsement of the products or services featured. Copyright © 2016 by NIADA Services, Inc. All rights reserved. Visit the NIADA website at www.niada.com.
STATE MAGAZINE MGR./SALES
Troy Graff • troy@niada.com EDITORS
Jacinda Timmerman • jacinda@niada.com Andy Friedlander • andy@niada.com MAGAZINE LAYOUT
Christy Haynes • christy@niada.com Christopher Hanley PRINTING
Nieman Printing
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MARKET WATCH / BY AUTO REMARKETING STAFF
KBB’S BEST BETS FOR USED VEHICLES UNDER $8K TODAY’S NEW CARS may be chock-full of the latest technology and features, but that comes at a price. In fact, the average price of a new car is $33,801. Because many people cannot afford a large monthly payment (let alone buy a new car outright), there exists a healthy market for affordable used cars. Still, prices for used vehicles run the gamut. With affordability in mind, the editors at Kelley Blue Book’s KBB.com have named this year’s 10 Best Used Cars Under $8,000. “While spending $8,000 or less won’t get you the newest tech or the shiniest paint job, it can buy you solid, reliable transportation that will last for the next several years if you play your cards correctly,” said KBB.com executive editorial director and executive market analyst Jack Nerad. “For those who feel a keen ache in their checkbook thinking about the prospect of a big monthly payment, this year’s list of KBB. com’s 10 Best Used Cars Under $8,000 should provide some relief, because there are good used car alternatives to a more expensive vehicle.” 1. 2006 Toyota Avalon 2. 2007 Honda Accord
3. 2010 Honda Civic 4. 2008 Toyota Corolla 5. 2008 Ford Crown Victoria 6. 2006 Subaru Outback 7. 2007 Nissan Maxima 8. 2007 Subaru Impreza 9. 2006 Mazda MX-5 Miata 10. 2010 Kia Soul KBB.com editors noted the Avalon is “big, quiet and comfortable,” as well as highly reliable. “Our master mechanic suggests that obtaining 200,000 miles of largely trouble-free driving is a distinct possibility,” they said. The other Toyota on the list, the 2008 Corolla, was noted by KBB mechanics as “a great choice for a used car if all maintenances have been performed. “Like most Toyotas, the Corolla seems to be ‘overbuilt’ compared to other cars in its segment, and that translates to solid reliability with few problems,” they continued. Coming in at No. 10, the Kia Soul’s aesthetics were likened to a common kitchen appliance. “Some would tell you it looks like a toaster, but if it does it is a very useful toaster,” KBB said. “Larger than you might guess it is, the Soul will swallow up a lot of cargo and haul five passengers in surprising comfort. If you can’t swing the cost of a small SUV (and don’t need all-wheel drive), the Soul will fill the bill.” To see KBB.com’s full coverage of the 10 Best Used Cars Under $8,000 for 2016, including vehicle photography, pricing details and editorial reviews, visit www.kbb.com/carreviews-and-news/top-10/best-used-carsunder-8000/2100000852/.
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ACCELERATE / BY GWC WARRANTY
5 TIPS TO CONVERT A “NO”
>> It Takes Discipline, Patience and
a Calculated Approach
F&I SALES can sometimes feel like a war of attrition. If you just ask the same question enough times, you’ll eventually wear down a customer into buying a product. But is that really the approach you want to take? It’s one that puts pressure on the customer and leaves them unsure whether they truly needed the product they just spent their hard-earned money on. Overcoming a “no” and converting it into the coveted “yes” is a difficult proposition that takes discipline, patience and a calculated approach. Once you have it down, though, you stand to create a more profitable business with happier customers. Find out if it’s really a “no.” Oftentimes, the real objection lies well behind the initial one-word negative response. Don’t be afraid to ask additional questions beyond your initial presentation. Investigate whether the customer had one in the past. Do they know a mechanic and that’s why they’re turning it down? Were they burned by a disreputable company in
the past? It’s extremely rare one of these examples isn’t the true objection hiding behind those two ugly letters. Be nimble. Once you’ve uncovered the true objection to a vehicle service contract, ask a few more questions about their specific situation. You’re taking on the role of detective in uncovering more information about their individual situation and how the experience and products you offer can change the perception they have of what you’re offering. Be prepared to pivot and address any number of potential true objections. Be ready with evidence. If you’ve gotten to the bottom of why a customer really is declining a service contract and you’ve gotten to know their objections on a more personal level, be ready to pounce with supporting evidence. If it’s someone who was burned in the past, bring up your reputation and show past repair invoices that were covered by a VSC. If they say another VSC didn’t cover anything, know the details of what’s covered with your products – especially non-component items like rental car or lodging reimbursements. Make a U-turn. If a VSC really isn’t hitting the mark with a customer, try talking about other protection options you offer. If they continue to decline, circle back to the VSC and explain why it’s even more valuable than the ancillary products they’ve also declined. Sometimes the comparison in coverage can shed light on the value of VSC protection.
Don’t make it about yourself. It can be difficult to hear “no” from a customer three, four or even five times in the F&I presentation. It’s even more difficult to maintain focus on the customer’s needs while continuing to push a service contract. Be sure your questioning is always focused on the customer and their specific situation. The moment a customer feels you’re pushing products for your financial gain rather than their benefit, you run the risk of losing a sale, referrals and a lifelong customer.
INDUSTRY NEWS / BY USED CAR NEWS
COX NAMES PRESIDENT FOR MEDIA SOLUTIONS GROUP >> Includes Autotrader,
Kelley Blue Book and Dealer.com COX AUTOMOTIVE ANNOUNCED Brian Geitner has been named president of the company’s Media Solutions Group. Geitner will oversee the company’s Autotrader, Kelley Blue Book and Dealer.com business divisions and brands, leading the integration of Cox Automotive’s platforms. He began his new role Aug. 15, reporting directly to Mark O’Neil, chief operating officer of Cox Automotive. Geitner succeeds Jared Rowe, who is departing the company for a new opportunity outside of the automotive industry. Since 2015, Geitner has served as president of Financial Solutions Group at Cox Automotive responsible for the advancement of NextGear Capital. Geitner joined Cox Automotive in 2012 as chief executive officer of Dealer Services Corp. www.aiada.net AZ_1016.indd 5
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BHPH PERSPECTIVE / BY DAVID MEYER
HOW MUCH RISK ARE YOU WILLING TO TAKE?
>>
>> A Way to Cut Costs and Mitigate Risk
AFTER YEARS OF declining sales, the automotive industry is once again on the rise. Fueling much of the resurgence in vehicle sales is the recent growth in subprime automotive financing. So what is fueling the increase in subprime auto loans? In the wake of the recent economic crisis, increasing numbers of car buyers found themselves saddled with poor credit resulting from job loss, foreclosure, bankruptcy and other financial woes. While still struggling with low credit scores, many of those customers are now moving toward financial recovery. They’ve found new jobs and careers, are earning decent salaries, have wiped the slate clean and are lowering their debts. Despite that progress, those creditchallenged customers still cannot qualify for traditional auto financing. But they still need vehicles. To meet that demand, increasing numbers of dealerships and lenders are approving more subprime auto finance, and are going deeper and deeper in the process.
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According to a recent report by Experian, “The percentage of auto loans to buyers with the poorest credit ratings is growing faster than the rest of the auto finance market.” Almost 21 percent of open auto loans are held by individuals with subprime and deep subprime credit ratings. However, with the uptick in auto loans, we are also witnessing one of the largest increases in auto loan delinquency rates on record. According to Fitch, increased loan originations, higher lender competition and looser underwriting standards in the subprime loan market have caused an influx of higher auto delinquencies. That’s a problem. Higher delinquencies mean higher rates of default. Which leads to the question: How can you better manage your portfolio and risk for success? As subprime auto lending continues to gain momentum and loans dive deeper, the associated risks continue to rise. Dealerships and lenders who offer subprime auto financing should be prepared for an increase in delinquencies, defaults, repossessions, collection staff time and resources – all of which come with significant costs that cut into profitability. BHPH dealers and lenders are now turning to GPS tracking as a smart business strategy that cuts costs and mitigates risk while also encouraging their customers to pay on time and improve their credit.
GPS tracking, in its most effective form, is a system that enables dealerships and lenders to verify customer information faster, ensure more on-time payments and locate vehicles in real time to manage their liability with high-risk vehicle collateral. The more advanced GPS vehicle tracking and collateral management systems include additional features such as payment reminders and advanced reporting. Those features further reduce business costs while also promoting on-time payments that help customers stay in their vehicles and rebuild their credit. In a study conducted on Spireon’s GoldStar GPS vehicle tracking, 87 percent of vehicle finance customers saw an increase on their return capital. Further, 77 percent saw a significant improvement of their customers’ credit ratings. The right type of GPS vehicle tracking can improve business profitability, reduce risk, help maintain CFPB compliance and help customers improve their credit. David Meyer is executive vice president of sales and client services for Spireon, bringing more than 28 years of vehicle finance and BHPH industry experience his role overseeing the company’s Automotive Solutions Group.
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ORDER YOUR S TAT E REQUIRED FORMS FROM A IA DA
We carry all of the forms you need - that the State requires for YOUR dealership. 3 Day IM147 Disclosure Application Automobile Financing Arizona Secure Power of Attorney Authorization to Release Auto Recycler Inventory Bill of Sale Buyers Guide As Is Buyers Guide Implied Warranty 1 part form Buyers Guide Implied Warranty 2 part form Customer Proposal Cost Dealer Acquisition Contract Disability Hearing Application Good Will Repair Acknowledgement Guta Del Comrador (Spanish Buyers Guide) Insurance Confirmation of Translation Lessor Authorization Motor Vehicle Installment Contract Notice of Co Signer One and the same Certificate Privacy Policy Release of Interest Repossession Affidavit Retail Deal Jacket Envelope (Larger Jacket) Secure Odometer Sold Notice Spanish-Confirmation De Entregay Reconicimento Spanish-La Declaration De Dias IM147 Special Plate Application Spot Delivery Agreement Statement of Error Temp Lic. Plate Holder Test Drive Agreement This Vehicle Not for Sale Labels Title and Registration Application Trade in Vehicle Appraisal Used Vehicle Implied Warranty Disclosure Used Vehicle Implied Warranty Disclosure Vehicle Purchase and Delivery Confirmation Vehicle Purchase Order Waiver of Implied Warranty Wholesale Deal Jacket Envelope (6x9) Wholesale Purchase Order and Ododmeter Statement
IdentiBrands also handles all of your graphic needs from forms, to general printed items such as business cards, stationary, general promotional products, apparel and all dealer supplies! We are expert at promotions and marketing including banners, large format graphics, and programs to help grow your business.
Order online at forms.aiada.net or call Jennie at 602.888.0706
Your investment in the AIADA pays dividends to your business and the independent automobile dealer industry. The AIADA is the only business association in Arizona that has as its sole purpose to advocate for the independent automobile dealer industry. We actively find ways to help businesses in our industry do better business including: ADVOCACY • Maintaining regular contact with ADOT & DFI helping to ensure rules and regulations avoid hurting the good guys. • Lobbying for legislation that balances the needs of our industry with the needs of the consumer. • Echoing the voice of the many! SUPPORT • Dealer queries. • Legal advice from attorney on record. • Negotiating agreements with vendors to reduce the cost of their product or service to our members. • Ongoing communication about changes in industry. • Business referrals based on actual need. DISCOUNTS • 15% discount on forms. • 50% discount on compliance training. • Up to 14% discount on insurance. ACTUAL $$$ BENEFITS (totaling up to $4,760) • 2 buy fees at ADESA Phoenix (total not to exceed $450) or a monthly $100 rebate (must be used for transaction in applicable month). • 2 buy fees at Metro Auto Auction (total not to exceed $350). • 1 buy fee at Dealers Auto Auction Southwest (total not to exceed $150). • 6 month registration at Insurance Auto Auction (new members only) and one sell fee, new business only ($135 value). • 2 buy or sell fees at Manheim Phoenix (total not to exceed $500). • 1 buy fee at ABS Auto Auctions (total not to exceed $425). • 1 buy fee at Manheim Arizona (no limit). • 2 buy fees at Manheim Tucson (total not to exceed $400). • 1 ABS Finance Flooring Fee (must be pre-approved for flooring credit line). • $1,000 advertising with Republic Media (new members/ business only). • $1,250 advertising with Autotrader (new members/business only). • 3 administrative fees with AFC Flooring ($225 value).
Call Jennie Grimes at 602.888.0706 to discuss your needs or by email at jennie.grimes@proforma.com.
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MANAGEMENT MATTERS / BY LAURA LEMCO
THE GOOD, THE BAD AND THE UGLY Substantiated Valuation
>>
>> Reasons You Need a
I GREW UP IN DEALERSHIPS. My parents owned a Honda, Suzuki and Harley-Davidson motorcycle dealership, and were among the first in the country to start selling Honda cars. They grew the automobile dealership into Honda, Buick and a line of motorhomes. Fast forward a few years… I have been a consultant in the motorcycle and automotive industries, first working with my dad in the consulting firm he built, then on my own when he got back into retail by buying three Harley-Davidson dealerships. Dad was a master at analyzing the numbers and advising dealers on the actions needed to be more efficient and make more money. In short, he was a dealer advocate, helping them combat “the swirl.” I have spent the last three years studying with the American Society of Appraisers and the National Association of Certified Valuation Analysts to get accredited as a business appraiser. After years of assisting with dealership transitions, I have seen several reasons a dealer needs a substantiated valuation of their dealership. I have broken the reasons down to the good, the bad, and the ugly THE GOOD
Retirement: Do you plan to retire someday? How? A retirement plan and/or a succession plan require an appraisal – a base valuation so you can see where you are and plan how you want to accomplish your plan. Transition: Do you have a son, daughter or protégée you want to see successfully transfer in? A valuation serves as a foundation from which to construct that transition plan. Expansion: Are you having so much success you are looking for more? What could a capital infusion do to your expansion plans? Providing a well-supported valuation to investors helps them understand how well you have succeeded so far, and that the risk of backing you is well justified moving forward. Sales: Maybe it is time to move into something else and you are starting to consider selling your dealership. A valuation provides you a way to plan for a sale, as well as a third-party appraisal you can use to work with a broker in setting your price, and with a potential buyer in negotiating your price.
THE BAD
We don’t always have control over everything that affects our businesses and sometimes we have to be reactive instead of proactive. Unfortunately, you, your friends and/or fellow dealers have gone through divorces, lawsuits or court proceedings that
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required a business appraisal. Sometimes a downturn in the economy causes the bank to require extra financials and assurance their risk is mitigated before they will extend your line of credit. None of these are pleasant circumstances, and having had a recent valuation can sometimes fill the need. Even if an updated valuation is required, it takes less time, effort and expense than having to start from scratch.
THE UGLY
I call them the 4 D’s, and I’m sorry, they really are ugly: • Death • Disease • Disability • Disaster You can, of course, imagine that if any of these things happened, you (or those close to you) will have to scramble to keep everything going as best as possible. There are things you can do ahead of time that make it easier on everyone – most importantly, having a will and a succession plan in place. Both use a dealership valuation to establish base values and a foundation from which to plan. Having a valuation done annually or even bi-annually before one of the ugly D’s strike will save you and your loved ones a lot of hassle. Let them focus on the things that really matter during those tough times. Somehow squeeze some planning and organization into your hectic life to be prepared. Hopefully, none of the ugly D’s will touch your life, and you can put your dealership valuation to use for some of the good reasons! What goes into a dealership valuation? Any appraisal must answer the question: Value to whom and for what purpose? Value to an investor who wants to continue the business? Value to a developer who wants someone to move the business out of that location, scrape the lot and build a hotel? A valuator not only assesses the performance of your dealership, but also the environment (local, national and even international if it has an effect on your dealership). They analyze the risks that affect your dealership, what benefits are most likely in the future, and then determine a value after applying the research and analysis. There are three methods of doing a valuation: market, income and asset. You are familiar with the market method used in real estate appraisals. Appraisers look at comparable properties in the neighborhood and use these “comps” heavily in deriving a value. Income approach looks at a benefit stream such as free cash flow, EBITDA or seller’s discretionary cash flow. They quantify the risk in a discount or capitalization rate, and apply that to future benefit streams. This is the most complicated, but also the method most relied upon by the IRS, financial institutions and the courts. The asset approach typically applies to asset-heavy businesses or a business that
will no longer be a going concern. Basically, all the assets are appraised and added up. This method can apply to your dealership’s new unit inventory. When someone says “a multiple of earnings plus inventory,” they are including all three methods in one phrase (perhaps without realizing it) – earnings (income method), multiple (income method and market method) and inventory (asset method). Depending on the availability and quality of information, appraisals can take anywhere from a couple weeks to a couple months. Honestly, I understand there is never a convenient time to get a valuation done. No dealer wakes up in the morning and says “Hey, I think I’ll get a valuation today!” Most of my engagements arise from an urgency or outside requirement. I get it. But the valuations I have done for proactive reasons are more valuable and less stressful for the dealers. I am not saying, “Drop what you are doing and pick up the phone now!” But I do encourage you: weave a valuation into your next strategy planning session, or start thinking a bit about where all your hard work is going. From growing up in dealerships, I know when I walk into a dealership it is not just a nice building with inventory and staff. This is an owner’s blood, sweat and tears over many years. This is someone’s dream and they made it happen. When you can, find out its value to help you chart your course to maximize that value into the future. Laura Lemco is a business consultant focused on helping improve dealership operations and providing financial analysis and business valuations. Call Laura at (303) 994-6919 for a free, confidential consultation. Learn more at www. DealershipValuations.com.
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MANAGEMENT GAMEPLAN / BY SCOTT BERGERON
TRADITIONS AND TRENDS NEED TO WORK TOGETHER
>>
>> Finding a Successful Blend
THERE’S A REASON traditions exist. They grow out of established, credible and time-tested circumstances. Trends, on the other hand, can be today’s hot attraction, which may or may not stand the test of time. How can a dealership capture the best of today’s trends and blend them successfully into a tradition-based program that drives more
sales on a consistent basis? CRM and Personal RelationshipBuilding There’s no question technology-driven Customer Relationship Management programs are firmly established as a trend. In all likelihood, CRM will become a tradition over time. But for now it’s still a relatively new and shiny toy many dealerships have embraced as a bedrock organizational and sales tool. CRM enables data mining about customers as well as regular communication with them. In essence, it can serve as the engine that drives relationship-building because it brings evidence-based intel to the table. Depending on the CRM used (and how consistently and completely it is adhered to), salespeople can gain valuable information about buying history and preferences, and communication preferences. It’s gotten to the point where CRM can tell a dealership how often to communicate with a customer via email, and what not to do (e.g., overwhelm with too many emails that end up alienating the customer). But without tires the vehicle won’t move very far. All the technology-driven protocols in the world can only go so far toward the time-honored tradition of relationship-building. This is the ability through interpersonal contact to establish and maintain trust, comfort and likeability with prospective and present customers. In the rush toward technology trends (e.g., Internet car-shopping and pricing tools), there’s a tendency to embrace the former and forget the latter. The truth is successful salespeople need both – the “scientific” piece that CRM systems can bring to the table and the “artistic” ability to develop rapport one-on-one. When the two work in harmony, dealerships get the best of both worlds. Buyers are “primed” by the CRM outreach that shows the dealership understands them and gives them useful information. In-person relationship-building then seals the deal. Here’s what can happen if the two aren’t working side by side: a prospective buyer walks into a dealership and is basically ignored by salespeople nearby because they’ve been schooled not to be too pushy or aggressive. (In some cases, it’s just plain laziness.) Armed with the amount of information available online, salespeople today too often assume a prospect will seek them out if interested. In the interim, they give them space. In reality, this is the worst way to proceed. It’s happened to me. I wound up feeling ignored rather than valued. Instead, a salesperson could have introduced himself/herself and offered to help – without coming across as pushy. This would have set the tone for a pleasant and productive discussion and potential sale.
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The trend is no-haggle pricing.
The tradition is to play the negotiating game. Both are valid. It depends on buyer preferences.
a lower price through negotiation, they won’t buy at all – or at least they will be reluctant. Here’s another perfect example of how trend and tradition can complement each other perfectly. The trend is nohaggle pricing. The tradition is to play the negotiating game. Both are valid. It depends on buyer preferences. So find out what those preferences are, then go one direction or another – or both. Read the prospective buyer carefully, then adjust as gut feelings dictate. If someone comes in and is adamant from the get-go about a firm price, so be it. If it’s unclear what their preferences might be, ask. (Then, have an option to fit their preferences. If they want to negotiate, be prepared to shift gears from one-price shopping.) Then, of course, there’s the hybrid – a
buyer who wants the firm price and wants to negotiate from there. Decide if/how to address this scenario. In short, prepare your salesforce to deal with all types of buyers. Because just as the U.S. is a melting pot of different ethnicities, so is the car buying population a melting pot of preferences. Those preferences can best be addressed by honoring both trends and traditions. Former dealer executive Scott Bergeron is the founder and principal at Daily Gameplan (www. dailygameplan.com), a sales team performance company. Daily Gameplan’s Red Books and cloudbased CRM have been used in thousands of dealerships throughout the United States. Bergeron can be reached at 303.918.3169 or scott@dailygameplan.com.
Internet Shopping vs. Instinct Another “trend” (yes, many will say it’s here to stay) is Internet-based car shopping and pricing. There’s no doubt the abundance of Internet information has led to much more savvy and educated buyers. This is great because it opens the door for a salesperson to build rapport based on instincts instead of just answering pedestrian questions about a potential car or sale. However, exercising those traditional instincts seems to be a lost art in too many dealerships. Salespeople often are cast as order-takers, there to follow through on customer requests. As with the CRM example above, this is leaving a big (some would say the biggest) piece of salesmanship on the salesroom floor. Instincts can be wonderful because they work at a level technology doesn’t. Properly tuned in, a salesperson can intuit buying clues just by observing a prospective buyer’s body language, movements, gestures and actions. For example, a prospect is viewing pricing information on a particular vehicle, then throws up his hands. That well could indicate frustration, or is it exhilaration? The alert salesperson will make sure to find out, and take the conversation in the direction it needs to go from there. While instincts themselves can’t be trained, awareness of when and how to use them can. This needs to become, once again, a key part of salesforce training – at the time of hiring, and periodically thereafter. Even if the new hire is a seasoned pro, the “hows” of exercising instinct may need to change depending on previous experience and current dealer aims. Iron-Clad Internet Pricing vs. Art of the Deal Following through on the trend of all things Internet, one-price-no-dickering shopping has become the rule, not the exception. Why? Yes, I know a gazillion surveys have said buyers don’t want to haggle or be hassled in the price-shopping arena, and that a one-price policy makes them feel much more at ease and trusting. Well, that’s great for those people. But what about those who like to haggle? There are still many buyers out there who live for the art of the deal. If they can’t feel like they’ve achieved
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DEALER BEST PRACTICES / BY CHET HEUGHAN
VENDOR MANAGEMENT
>>
>> What Lenders Want to Know
About Your Dealership
VENDOR MANAGEMENT has become somewhat of a buzzword in the consumer lending industry, especially around auto lending. It has always been a financial institution’s responsibility and obligation to know who they are doing business with and how loan applications are reaching their institutions. The Consumer Financial Protection Bureau, however, has further emphasized financial institutions are responsible for the end product. This is to say that any negative actions taken by the dealer will become a problem for the lender. Within franchised dealerships the vendor management requirement is aided by a strong presence from the manufacturer. For example, a franchise dealer has certain covenants that require financial reporting, including minimum capital thresholds, required training and certifications. Franchised dealers also benefit from the monitoring of customer satisfaction surveys, detailed inventory tracking and industry benchmarks provided by other franchise dealerships selling the same brands. Independent auto dealers represent a unique challenge for many lenders. Independent auto dealers often vary in size, financial strength, operational models, inventory and experience. Unlike most franchise dealerships, independent auto dealers do not have the support of a franchise offering multiple checks and balances. It is easy to understand why lenders then tend to gravitate toward independent dealers that look and act more like a franchise dealership. As indirect auto lending has become more competitive and lenders struggle to increase yield, many have had to broaden their credit spectrum and move closer toward subprime lending or expand their dealer network outside their traditional relationships. To do this lenders have had to modify their dealer underwriting and dealer management models to fit smaller dealerships with more diverse revenue and sales models. In years past independent auto dealers had to meet the same minimum criteria for doing business with the lender as a franchise dealership, but times are changing. Many lenders have multiple programs and mitigate the risk of smaller dealerships with low working capital and minimal experience by using a third-party risk mitigation platform. With many of these platforms, small or new independent dealerships can gain access to the same national programs as large franchised stores. Lenders are able to serve independent dealers because thirdparty risk mitigation platforms are helping bring efficiency and transparency to the transaction. 12 INDEPENDENT DEALER / OCTOBER/NOVEMBER 2016 AZ_1016.indd 12
For example, independent dealers may be subject to more frequent underwriting, additional verification steps and less direct access to loan underwriters. While there is more work on the dealer’s side, these steps also benefit the stores’ owners by helping identify fraud attempted by customers or rogue employees. The days of simply signing a lender’s dealer agreement and providing a few supporting documents to gain access to their retail financing program are drawing to a close. Lenders are being required to truly know and manage their dealer relationships. This means updating key pieces of data and underwriting each dealership on an annual basis. As an independent auto dealer it’s important to understand what lenders are looking for and be prepared to provide the documentation needed annually to avoid disruptions in your lenders’ retail financing programs. Lenders will be evaluating the dealer principals, the dealership itself and inventory. They will be looking at credit reports that indicate bankruptcies, tax liens, past-due accounts, and potential fraud or identity theft. In addition, lenders will check criminal history reports and verify addresses, property ownership, bank statements, business financial statements and tax returns. Lenders will also be looking at more subjective data such as references from your auctions, floor plan lenders, warranty providers and personal references. You should be prepared to provide proof of insurance, copies of bonds and licenses, and expect a yearly site visit and basic inspection of your facility. Lenders really want your business, but they must first know who you really are. Creating your own internal process for managing due diligence requests from lenders and thirdparty risk mitigation service providers will make this process easier and more efficient for you. Understanding what lenders are looking for and providing it in a timely manner goes a long way toward building a strong profitable relationship along with the ability to compete with your neighboring franchise stores. Chet Heughan is director of AppOne® Risk Mitigation Services and Indirect Lending for Wolters Kluwer. For more information, please visit www. wolterskluwerfs.com.
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